PERFORMANCE EVALUATION OF GENERAL INSURANCE COMPANIES WITH SPECIAL REFERENCE TO FEW SELECTED PUBLIC AND PRIVATE SECTOR INSURANCE

COMPANIES IN KARNATAKA INTRODUCTION Insurance plays a significant role in the development of a country. It is one of the service sector which focuses on all segments of the society. With the increased population, industrialization and the changing environment, insurance related issues and problems are being emphasized and have become a great concern for the contemporary world. Insurance is defined as the equitable transfer of risk of loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice Insurance sector was earlier focused by the public sector undertaking. But, due to the changing conditions and vast population, it has demanded the private sector enterprises to involve in the insurance sector. Insurance sector covers not only

concentration on individual but also an industry and society. Earlier, life insurance had become more significant part of the society. But due industrial growth and private sector entry into the insurance sector the focus is rapidly changing towards general insurance.

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There are mainly two types of insurance business LIFE INSURANCE Life Insurance is the insurance for you and your family's peace of mind. Life insurance is a policy that people buy from a life insurance company, which can be the basis of protection and financial stability after one's death. Its function is to help beneficiaries financially after the owner of the policy dies.

It can also be a form of savings in the long run if you purchase a plan, which offers the option of contributing regularly. Additionally, a little known function of life insurance is that it can be tied in with a person's pension plan. A person can make contributions to a pension that is funded by a life insurance company. These are considered private pension arrangements. GENERAL INSURANCE Insurance other than Life Insurance falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc. Non-life insurance companies have products that cover property against Fire and allied perils, flood, storm and inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non-life companies also offer policies covering machinery against breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business.

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General insurance is for both personal and business. Life insurance basically focuses on persons and uses the finance accumulated for business. General insurance is important since it serves as a support system in all fields and all walks of life. It covers non-life , assets and buildings jewelries and vehicles , etc.. And a third party damage like passengers on a travel car, bus, rail, and indemnity of doctors covers all except life, General insurance is very important in ordinary life because now a days vehicle, home, travel, hospitalization expenses are very costly. Now a days, we are living a risky life where we are not secure anything else. If we are travelling somewhere our luggage may be lost or we can meet some crisis. If we are using vehicle it can be also damaged by an accident. So, general insurance gives us security and financial support.

General insurance serves to an individual, business and society, in the form of removal of uncertainties, Stimulant of business enterprises, reduction of chances of losses, solution to social problems, promotion of international trade, provides employment opportunities etc.

There are four public sectors undertakings in general insurance business. They are 1. National Insurance Company Limited, 2. New India Assurance Company Limited, 3. Oriental Insurance Company Limited and 4. United India Insurance Company Limited. There are some private insurance companies are involved in insurance business Tata-AIG, ICICI Met Life, Bajaj Allianz, Reliance, HDFC are some of them.

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HISTORY OF INSURANCE The first methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as in the 3rd and 2nd millennia BC respectively. Chinese merchants travelling treacherous river rapids used to redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, 1750 BC and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan. Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nowruz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices. INSURANCE IN INDIA: LIFE INSURANCE Indian insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.
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The year 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however, failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. The year 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian
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and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

GENERAL INSURANCE The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd was set up. This was the first company to transact all classes of general insurance business. The year 1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.

In 1972, with the passing of the General Insurance Business (Nationalization) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1st 1973. The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an Act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the Policyholders, to regulate, promote and ensure orderly growth of the Insurance industry and for matters connected therewith or incidental thereto.
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REVIEW OF LITERATURE The literature in the area of general insurance is enormous. It is very difficult to review all the works carried out in the area of general insurance and the review is limited to only those studies which are relevant to the objectives of the present study. With this background review of a few important works made the following paragraphs with an objectives of identify the long research gap that exists at present.

Diacon et al. (2002), in their research paper, explored the efficiency of European specialist and composite insurers transacting long-term insurance business. An exploration of the value based measure of the insurance company inputs and outputs were utilized to measure technical efficiency of long-term insurers by comparing the performance of approximately 450 insurers licensed in fifteen European countries using data from Standard and Poor's Eurothesys database. It was found that insurers transacting long-term business in the UK, Spain, Sweden and Denmark were likely to have the highest average levels of technical efficiency. Secondly, UK insurers appear to have particularly low levels of scale and mix efficiency when compared to their European counterparts. Jeng and Lai (2005), in their article, used the non-parametric frontier method to examine differences in efficiency for three unique organisational firms in the Japanese non-life insurance industry, Keiretsu firms, non-specialized independent firms (NSIFs), and specialized Independent firms (SIFs). The study also indicated that the productivity changes across the different organizational forms revealed deteriorating efficiency for all three types of firms throughout the study period. The paper revealed that the value added approach and the financial intermediary approach provide different but complementary results. Mahmoud (2008),in his paper identified the financial performance of insurance companies in Egypt. The data consisted of six insurance companies, three of which were from the public sector, while others represented private sector companies for the period 1992-93 to 2005-06. The author has used 25 ratios to measure the efficiency and financial
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performance. These ratios were reduced to six factors through factor analysis. The study found that the mean of efficiency of financial performance, ratios of the public and private sectors do not vary significantly for the following ratio returns on investments, net profit to total assets, net profit to surplus, total liabilities to total assets, and underwriting expenses paid to premiums written. Kumar Rohit(2010), in his research, observed that the insurance industry as a whole has recorded profound growth after liberalization and privatization of the sector, though the reforms have adversely affected the underwriting results of all the public sector general insurance companies. In the post-reform period, the comparative profitability analysis of the public and private sectors revealed that the public sector general insurance companies have exhibited higher underwriting losses than the private sector companies but the higher investment income of the public sector has compensated their higher underwriting losses which resulted into their higher profitability than the private sector general insurance companies.

Like this few works are carried out focusing on various dimensions of insurance companies. But there is no comprehensive work carried out on the performance evaluation of general insurance companies by focusing on health and motor insurance. Hence, the present study tries to cover the research gap.

STATEMENT OF THE PROBLEM It has been observed that the General Insurance Companies have been making losses year after year despite increase in the business volumes. The solvency margin of the insurance companies has also taken a dip from the mandatory 1.5 level prescribed by IRDA. Although many problem areas have been identified in the past, no concrete solutions have been identified. It has been identified that the growth in insurance sector is largely in two areas i.e. health and motor insurance.

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This research aims to address this problem of continuous incurring of losses by insurance companies by studying these two major business areas of health and motor insurance. This study will address the recent trends in these two major areas and investigate into the level of impacts these two portfolios have on the loss ratios of insurance companies

NEED FOR THE STUDY

General Insurance is one of the service industry which focuses on economic development of the country. But, due to the entry of the private sector, public sector faces stiff competition and it expanded its business through offering new type of products by innovate services. In this background, this study makes an attempt to evaluate the performance of few selected general insurance companies. The research studies on the general insurance in India, particularly in Karnataka State carried out are inadequate. Even though few attempts have undertaken on the area of general insurance they are not comprehensive. Hence, the study will be focused on this area.

OBJECTIVES 1) To study the premium portfolios of the companies selected for the study. 2) To find out the impact of recent changes in the health and motor insurance of selected companies. 3) To evaluate the performance of selected public and private sector insurance companies in Karnataka. 4) To measure the impact of growth on the profitability of these companies. 5) To identify the key performance areas in sustaining profitability of these companies. 6) To identify the problems associated with the continuous maintenance of profitability over a longer period of time. 7) To offer suitable suggestions based on the findings of the study.
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SCOPE OF THE STUDY

The study intends covers two public sector Viz., New India Assurance Co Ltd., and Oriental Insurance Co Ltd and two private sector insurance companies Viz., Tata AIG and ICICI Lombard.

This scope of the study extended to evaluation of performance of general insurance companies. This study has a special focus on the relation of profitability and growth of selected General Insurance Companies. It further concentrates on the premium portfolio analysis and studying the impact of the recent trends in the health and motor insurance business. It is intended to cover a period of five years from 2009-2014.

SOURCES OF DATA COLLECTION AND METHODOLOGY

The study mainly depends on the secondary data collected from the study units in Karnataka state. In addition to this, secondary data will be collected from monthly journals of IRDA, insurance journals, annual reports, books, other published documents on insurance topics and internet sources.

As far as statistical applications are concerned, it is proposed to use tools like ratio analysis, percentages and average analysis. In addition to these, diagrams, tables and graphs will also be prepared for effective presentation.

LIMITATIONS OF THE STUDY

1) The area of research regarding general insurance is restricted to few selected public and private sector general insurance companies in Karnataka. 2) The Study period of this research restricted to only five years.

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CHAPTERSCHEME The entire work is proposed to be presented in the following eight chapters. Chapter Number I II III IV V VI VII VIII IX Introduction(Research Design) General Insurance-An Overview General Insurance-Indian Scenario General Insurance in Karnataka-An Overview Profile of selected General Insurance Companies A Brief Study of premium Portfolio of health and motor insurance Performance of selected General Insurance Companies-An Overview Analysis of data Summary of Major Findings, Suggestions and Conclusion Title of the Chapter

(Research Supervisor)

(Research Scholar)

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REFERENCES AND BOOKS

1) Australian Law Reform Commission 1982, Insurance contracts, ALRC 20, AGPS, Canberra, Paragraph 44. 2) Consumer-oriented Insurance Industry, SCFTA 1985, p-30. 3) 27th Annual Report of Director General of Insurance, Bank Negara Malaysia 1989. 4) Margaret E. Lynch, Editor, "Health Insurance Terminology," Health Insurance Association of America, 199 5) 31st Annual Report of the Director General of Insurance 1993, Band Negara Malaysia 6) Lehman, Lee & Xu Insurance Law of the People's Republic of China 1995. Lehman. 7) Randall S. (1998) Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners. Florida State University of Law Review. 8) CJ Campbell, L Goldberg, ARai. (2003) The Impact of the European Union Insurance Directives on Insurance Company Stocks. The Journal of Risk and Insurance. 9) Gregory D. Squires (2003) Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas Journal of Urban Affairs Volume 25 Issue 4 Page 391-410, November 2003 10) Insurance Council of Australia Limited, June 2004.
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11) M.C.Garg, Insurance Fundamentals Environment and Procedures, 2004, Deep and Deep publications Pvt Ltd, New Delhi. 12) M N Mishra, Principles and Practice of insurance. 14th edition 2007, S C Chand Publications, New Delhi. 13) Anand Ganguly, Insurance Management, reprint-2007, New Age International(p) Ltd publishers. New Delhi. 14) K Ravichandran, Recent trends in Insurance sector in India, 2007, Abhijeet Publication, New Delhi. 15) J Schacht, B Foudree. (2007) A Study on State Authority: Making a Case for Proper Insurance Oversight NCOIL 16) IRDA Quarterly Journal, March 2010, Volume viii, No.3, Statistical Supplement. 17) http://www.thecityuk.com/assets/uploads/insurance-2010.pdf 18) www.irdajournals.com

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